While homes are affordable and mortgage rates are at historic lows, said Frank Nothaft, chief economist for Freddie Mac, "powerful headwinds," including unemployment and low consumer confidence, continue to slow the recovery. Nothaft was in South Portland on Wednesday morning discussing the housing and mortgage industries in Maine and the country.

SOUTH PORTLAND, Maine — While interest rates are at their lowest level in 65 years and home values are starting to creep up, there are still “strong headwinds” slowing the housing market recovery in Maine and the nation, according to a national expert who spoke Wednesday morning in South Portland.

Frank Nothaft, chief economist for Freddie Mac, told his South Portland audience the good news first: Home sales are slowly rising.

In Maine, home sales were up 8.3 percent in the first quarter of 2013 compared with the same quarter last year. During the same period, home sales in the Bangor metropolitan service area, which includes all of Penobscot County, were up 9.1 percent, while the Portland metropolitan service area — which is York, Cumberland and Sagadahoc counties — experienced an 8.6 percent rise in home sales, according to Nothaft.

That’s a result of relatively low home values and low mortgage rates, which “work together to support a high degree of affordability for home buyers,” he said.

“I’ve been following the housing and mortgage market for 30 years,” Nothaft said. “If you told me several years ago we’d see mortgage rates of 3.5 percent, I’d ask you what you’re smoking, because it wouldn’t happen.”

He does expect mortgage rates to rise slightly over the coming year, however.

The National Association of Realtors measures what it calls the Affordability Index, which takes into account mortgage rates, home prices and average family income. The index is “off the charts,” the highest it has been in the four decades the group has been measuring it, meaning homes are very affordable, Nothaft said. Given that, an observer would expect the housing market to be booming over the next year, Nothaft said.

“But as you know, the housing market is not booming; we don’t have home sales off the charts,” Nothaft said. “Home sales are up — they’re up about 8 to 9 percent relative to a year ago — but they’re far from booming, and that’s because there are powerful headwinds that are pushing back on the housing [market].”

The first of these challenges is unemployment. The national unemployment rate is 7.6 percent, but when discouraged workers are included, it’s more like 14 percent, Nothaft said. In Maine, the unemployment rate was 7.1 percent in March, down slightly from 7.3 percent both in February and one year ago, according to the Maine Department of Labor. March unemployment in the Portland area was 6.2 percent while the Bangor area had a rate of 7.1 percent, according to the Labor Department.

“There are a large group of people who might be potential home buyers, but they don’t have any income, they don’t have a job, and nowadays if you’re unemployed you’re unable to buy a home,” Nothaft said, pausing a second for effect. “The market has changed a bit from a few years ago.”

In Freddie Mac’s loan portfolio, 55.3 percent of homeowners said unemployment or curtailment of income was the hardship reason that led to foreclosure proceedings, Nothaft said.

Freddie Mac, based in McLean, Va., is a government-sponsored organization that purchases mortgages from lenders and bundles them into mortgage-backed securities.

The other challenge to market recovery is consumer confidence, which has remained relatively low compared with past periods of recovery.

“Yes, it’s better than when at the depths of the Great Recession, but for this far into an economic recovery, people aren’t feeling too good,” Nothaft said.

A feature of Maine’s housing market Nothaft found interesting as he prepared for these presentations is that the housing price cycle hasn’t been as severe as in other parts of the country.

“You had a big run-up in home values, but it pales in comparison to what we saw in some of the real hot markets that are the poster childs for the boom and bust,” Nothaft said. “The decline in home values, while pretty substantive here in this market — 15 percent or so decline from the peak — is much more moderate compared to what we see in national indices and much more moderate relative to what we saw in the really distressed markets … like Las Vegas down 60 to 70 percent in value. So it’s a much more moderate boom and bust relative to other markets.”

Maine’s default rate remains high, however: about 5.4 percent for prime loans 90 days or more in default or foreclosure, compared with 4.3 percent for the country, Nothaft said.

Bangor Savings Bank, which has 20 mortgage loan officers in the state, has seen the ups and downs of the market as Nothaft described it, according to Yellow Breen, the bank’s chief strategic officer. However, when it comes to mortgage loans in default, Bangor Savings Bank’s rate is 0.8 percent, much lower than the national or state average, Breen said.

“It’s a reflection I think of a different kind of borrower here in Maine,” he said. “Folks are generally trying to honor their debts and work through these things.”

Nothaft was in Maine this week courtesy of Bangor Savings Bank. He spoke in Bangor on Tuesday and at the Sable Oaks Marriott in South Portland on Wednesday morning.